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PacifiCorp prepares for future

Lower electricity prices may follow deregulation in Utah

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PacifiCorp is ready for whatever path Utah's lawmakers take regarding deregulation but wants uncertainty removed as it does its planning, a company spokesman told a legislative task force Thursday.

Terry Hudgens, senior vice president of power supply for PacifiCorp, the holding company for Utah Power, told the Electrical Deregulation and Customer Choice Task Force that once uncertainty in certain issues is removed, customers will see falling electricity prices.

The task force is charged with preparing legislation designed to implement an electrical restructuring plan, unless it is deemed to be not in the state's best interest.

Noting that "we are prepared to be a regulated utility or unregulated merchants," Hudgens told the task force that PacifiCorp would like uncertainty removed regarding rules and regulations and changes to them, while understanding that evolution and change will occur. The company also would like roles and rules clarified regarding issues such as who will build generation plants and supply power, who they can sell electricity to and how they can be assured of recovering costs.

Once that uncertainty is removed, the needed generation plants will be built and prices will fall, he said, cautioning that the electric commodity market nonetheless will remain volatile.

The problems for PacifiCorp come from years of operating in a low-risk, low-reward environment, and the company would need to make adjustments to deregulation, which would have the potential for higher rewards but also higher risk, he said.

"We need to reduce the uncertainty that we face, that the customers face and that the policymakers face," he said.

Rep. Sheryl Allen, R-Bountiful, asked Hudgens if the uncertainty would be worsened if Utah delayed action on deregulation. Hudgens said it would not, as long as there was a sense of how long the delay would be.

"As long as there is a cloud of 'will we be regulated or deregulated,' it does present a dilemma," he said.

James V. Mahoney, senior vice president of asset management for Pacific Gas and Electric's National Energy Group, told the task force that while publicity this summer has focused on high price spikes in deregulated states, some statistics counter the idea that customers suffer without regulation.

In fact, customers in New England and other areas are seeing lower average electricity prices in 2000 than in 1999, even when figures are adjusted for weather variables, he said.

"If you set it up correctly, you can provide customer isolation from risk," Mahoney said.

Among problems facing utilities are depleted supplies because construction of new generation plants has been on hold as companies see how the industry is restructured, Hudgens said. "We are convinced if you unleash the forces of a competitive marketplace, there will be substantial benefits to the supply."

PacifiCorp has adequate overall supplies for the next several years but might be short during summer and some winter peaks, when it would need to buy some electricity on the open market, he said.

Mahoney noted that a competitive marketplace has other benefits than just lower customer costs. Companies will seek higher quality in their materials, which results in better reliability. "That's where the value of competition is," he said.

Some of Thursday's discussion focused on California's woes where some customers have seen electricity bills skyrocket, especially during peak demand hours in the summer, as the state adjusted to an unregulated industry.

California's price spikes probably will continue for another couple of years, Mahoney said. "But we think there are drastically lower prices in the future," he said.

Hudgens said California has faced growing demand, a limited supply and uncertainty about how restructuring issues would be resolved.

"They will have continued high prices for a couple of years, until the supply can catch up," he said.

While there has been short-term pain, "I do think it will work itself out," Hudgens said of California's situation. "I do believe the market will find solutions. I believe the free market and competition can find efficiencies that cannot be imagined."

Sen. Lorin Jones, R-Veyo, said Utah may have long-term benefits if it chooses to deregulate the industry, "but in the meantime, I think we will all be hit with higher energy costs."

Sen. Ed Mayne, D-West Valley, suggested this has been "a bad summer for deregulation," and cautioned that lawmakers should carefully watch to see how California resolves its problems.

Mayne also proposed having some larger electricity users in Utah be part of a deregulation pilot project. A few other task-force members agreed, but no action was taken because the task force lacked a quorum.

The task force's next meeting is tentatively set for 1 p.m. on Sept. 14.

E-MAIL: bwallace@desnews.com